O'Reilly Radar » Pamela Samuelsonhttp://radar.oreilly.com
Insight, analysis, and research about emerging technologiesSat, 01 Aug 2015 15:57:56 +0000en-UShourly1http://wordpress.org/?v=4.2.3Anti-circumvention rules limit reverse engineeringhttp://radar.oreilly.com/2015/07/anti-circumvention-rules-limit-reverse-engineering.html
http://radar.oreilly.com/2015/07/anti-circumvention-rules-limit-reverse-engineering.html#commentsWed, 08 Jul 2015 11:00:10 +0000http://radar.oreilly.com/?p=78456Editor’s note: this article originally published in the July issue of Communications of the ACM (CACM); it is cross-published here with permission.

Computer security researchers and hobbyists who want to tinker with the software in their cars are among those who will find out by the end of 2015 whether the U.S. Copyright Office has issued exemptions from the Digital Millennium Copyright Act (DMCA) anti-circumvention rules. Exemptions would enable these actors to engage in reverse engineering that might bypass technical measures that protect access to copyrighted software or content. It is much to be hoped for that the Office will exempt all uses that pose no threat of copyright infringement, which is all that the anti-circumvention rules were supposed to be about. Unfortunately, the rules were drafted very broadly. Hence, the need to seek exemptions.

Until the U.S. Congress passed the Digital Millennium Copyright Act (DMCA) in 1998, reverse engineering of computer programs and other digital works was widely regarded as lawful in the U.S. The DMCA changed the law because the entertainment industry feared that clever hackers could and would bypass technical protection measures (TPMs) that the industry planned to use to protect their copyrighted works from unauthorized copying and dissemination. The industry persuaded Congress to make it illegal to circumvent TPMs and to make or offer circumvention tools to the public.

Circumvention of TPMs is, of course, a form of reverse engineering. This activity is now illegal not only in the U.S., but also in most of the rest of the world unless there is a special exception that permits circumvention-reverse engineering for specific purposes under specific conditions. The DMCA rules, for instance, include exceptions for law enforcement, intelligence, and national security purposes, for making software interoperable, and for encryption and computer security research under certain conditions.

In response to expressions of concern that the anti-circumvention rules might have detrimental effects on the ability to make fair and otherwise lawful uses of technically protected digital content, Congress created a triennial rulemaking process that enables affected persons to request special exceptions to the anti-circumvention rules to engage in specified legitimate activities that TPMs are thwarting.

In November 2014, the Copyright Office received more than 40 proposals for special exceptions to the DMCA anti-circumvention rules. In February 2015, the Office received detailed comments explaining the rationales for the proposed exceptions. In late March opponents had an opportunity to argue against adoption of the proposed exceptions. In May, proponents were able to offer further support for their proposed exceptions. The Copyright Office is now reviewing the record, holding some hearings, and it will ultimately issue rules that will either grant or deny the requested exceptions.

This column provides an overview of the requested exceptions and delves into some proposals that may be of interest to computing professionals.

Overview of submissions

About half of the proposed exceptions aim to enable interoperability with devices or software that the anti-circumvention rules arguably makes illegal. Some submissions argue for exceptions to allow bypassing TPMs for purposes of repair and modification of software in vehicles. A few ask for broader exceptions for computer security research purposes.

Several proposed exceptions aim to overcome impediments that the anti-circumvention rules pose for creating multimedia ebooks, other educational materials, documentary films, and remixes of technically protected works. Two submissions request exceptions for bypassing TPMs to provide assistive technologies for print-disabled persons so that these persons can, for example, have access to digital books in alternative formats.

One submission asks for an exception to enable consumers to be able to continue to use video games they’ve purchased after the games’ makers have stopped providing support for the games. Another submission seeks to enable space-shifting of DVD movies. Two others want to make broader personal uses of technically protected works.

Missing from the triennial review in 2014-15 is a proposed exception to allow bypassing of TPMs to “unlock” cellphones so that their owners can access alternative wireless networks. Even though the Copyright Office denied a requested exception to enable this activity in the last triennial review, Congress passed a special law in 2014 that granted an exception for this legitimate activity, a sensible result given that cell phone unlocking poses no threat of copyright infringement.

Interoperability

Because the DMCA rules have an interoperability exception, it may seem puzzling that so many of the proposed exceptions to the anti-circumvention rules address interoperability issues. The existing exception permits reverse engineering of technically protected software “for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs.” The information obtained thereby can only be used or disseminated to others for interoperability purposes.

Does that exception permit circumvention for purposes of enabling consumers to use computer tablets or wearable computing devices to access alternative wireless networks or to access mobile hotspots? The Rural Wireless Association fears that it does not, so it is seeking exemptions for these kinds of activities. Unfortunately, the cell phone unlocking exception passed by Congress does not extend to these devices. Yet, these uses would seem to pose no threat of copyright infringement to justify outlawing this type of circumvention of TPMs.

Another interoperability exception being sought is Public Knowledge’s effort to enable bypassing of TPMs that makers of 3-D printing devices have embedded in their software to stop unauthorized firms from competing in the supply of feedstock to owners of their 3-D printers. Competition policy would seem to support the grant of this exception, which also poses no threat of copyright infringement.

Two other interoperability exceptions focus on bypassing TPMs to enable consumers to have more choices on the applications that can run on their devices. One submission asks for an exception so that owners of Linux operating system computers can watch lawfully purchased DVD movies. Another submission requests an exception so that owners of video game consoles can bypass TPMs that limit the applications that can run on those consoles.

Among the types of software systems in devices that these researchers envision testing are: insulin pumps, pacemakers, car components (including braking and acceleration systems), controls for nuclear power plants, smart grids, and transit systems, as well as smart technologies for the home. These researchers argue that such systems are very important for the health and safety of their users and of the public at large. Malfunctions, flaws, and vulnerabilities may cause considerable harms to individuals and to the public, so good faith testing is a public good. It too poses no threat of infringement, which was the principal justification for adoption of the anti-circumvention rules in the first place.

There is an existing computer security exception in the DMCA, but it requires advance permission of the owner of the computing system being tested and seems to limit the dissemination of results of security testing to the owner of that computing system.

The Bellovin submission wants computer security researchers to be able to test vulnerabilities without getting advance permission. The researchers also want to be able to disseminate their research results in responsible ways, such as by presentation of research results at conferences and in journal publications. The DMCA rules now contemplate that a copyright owner in technically protected software could enjoin dissemination of research results. This has had a chilling effect on the research that can be done to test the security of a wide variety of computing systems.

What will the office do?

If the past is any predictor of the future, chances are quite high that the Copyright Office will eventually deny the overwhelming majority of the requested anti-circumvention exceptions, no matter how harmless they might seem.

Some proposals will likely be rejected because the Office believes proponents failed to prove that TPMs are actually an impediment to lawful uses of copyrighted works; it is not enough to assert that TPMs might impede legitimate activities.

Some proposals may be denied because the Office perceives that the requested exception will enable infringing uses. Eldridge Alexander, for instance, is unlikely to get an exception so that he can bypass CSS to create a software library of his DVD movies because bypassing CSS would also enable infringing uses of the movies.

The Office may dismiss some requested exceptions as unnecessary because it perceives that there are other ways to achieve the stated objective (e.g., video capture of images from movies for educational or critical uses rather than bypassing the TPMs).

Even those exceptions that the Office grants may be more restrictive as granted than as requested. During the last triennial review, for example, the Office was willing to grant an exception for film studies professors to bypass CSS to show clips from movies to illustrate filmmaking techniques. However, the Office did not recognize that many other types of instructors could benefit from an exception that enabled them to make fair use clips of movies to illustrate other types of lessons.

During the current triennial review, the Authors Alliance (of which I am a co-founder) has proposed exception for multimedia ebooks that would, for instance, enable me to show clips from various James Bond movies so that my students could consider whether James Bond is an “idea” or an “expression” under copyright law, an issue that has been litigated in some U.S. cases.

Will the Office recognize the validity of the interoperability and computer security testing exceptions being sought? One can certainly hope so. However, without a team of technologists to analyze the submissions and advise the Office about the exception proposals, there is reason to worry that the Office will regard these exceptions skeptically, especially if entertainment industry groups oppose them as they have in the past.

Conclusion

Congress should, of course, have adopted narrower anti-circumvention rules in the first place. Only circumventions that facilitate copyright infringement should be illegal. This would obviate the need for a triennial review process, and make reverse-engineering of digital works far less risky than it is today.

Over time, the anti-circumvention rules may perhaps be amended so that computer security and interoperability interests are better protected than they are now. Yet until that day comes, we should be grateful that the triennial review process exists to provide a mechanism by which computing professionals, among others, can make the case for reverse engineering as a legitimate activity that serves the public interests in competition, ongoing innovation, and public health and safety.

For a more extended discussion about how intellectual property laws are thwarting reverse engineering and other playful uses of copyrighted materials, see Pamela Samuelson’s Freedom to Tinker paper.

]]>http://radar.oreilly.com/2015/07/anti-circumvention-rules-limit-reverse-engineering.html/feed0Copyrightability of Java APIs revisitedhttp://radar.oreilly.com/2014/11/copyrightability-of-java-apis-revisited.html
http://radar.oreilly.com/2014/11/copyrightability-of-java-apis-revisited.html#commentsTue, 25 Nov 2014 12:00:57 +0000http://radar.oreilly.com/?p=72131Editor’s note: this is a forthcoming article for the March 2015 issue of Communications of the ACM (CACM); it is published here with permission.

For more than 20 years, the prevailing view has been that application program interfaces (APIs) are unprotectable elements of copyrighted computer programs. Under this view, programmers are free to reimplement other firms’ APIs in independently written code. Competition and innovation in the software industry has thrived amazingly well in part because of rulings upholding this understanding.

Challenging this view is the Court of Appeals of the Federal Circuit (CAFC) May 2014 decision in Oracle v. Google. The CAFC held that the “structure, sequence, and organization” (SSO) of Oracle’s Java APIs that Google reimplemented in its Android software are protectable expression under copyright law. It reversed a lower court ruling that the Java APIs were not copyrightable.

The Supreme Court may take the case because the CAFC’s decision is in conflict with other appellate court rulings that exclude APIs from copyright protection.

This article will explain the Oracle and Google theories about the copyrightability of Java APIs and the precedents on which each relies. The stakes in this case could not be higher.

Oracle’s claims

Developing Java APIs required considerable creativity. Sun’s engineers had substantial freedom in the choices they made about how to structure the APIs. The Java APIs are thus easily original enough to qualify for copyright protection, says Oracle (which acquired the intellectual property (IP) rights in Java when it acquired Sun Microsystems).

Java has achieved considerable success, which is why Google wanted to use Java APIs in its software platform for mobile devices. Google entered into negotiations with Sun about licensing rights in Java, which shows that it knew that it needed a license.

When these negotiations failed, Google went ahead and copied 37 of the Java APIs anyway in the Android platform for mobile devices. Tens of thousands of Java programmers have written apps to run on that platform. These apps have contributed to the extraordinary success of Android devices.

Shortly after acquiring Sun and its assets, Oracle sued Google for copyright infringement. (There were originally some patent claims in the case as well, but a jury ruled against those claims.) Oracle relied on some judicial precedents that had held that the SSO of programs is protectable by copyright law as long as there are multiple ways to design that SSO.

Section 102(b)

At issue in the Oracle case is the proper interpretation of Section 102(b) of U.S. copyright law. It states that “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle or discovery, regardless of the form in which it is…embodied in such work.”

Oracle asserts that this provision restates the classic distinction between expression (which copyright law protects) and ideas (which are beyond the scope of copyright protection). Because the Java APIs are much more detailed than ideas and may have original elements, they are not ideas alone, but rather expressions of ideas. The CAFC agreed, concluding that these Java APIs are copyrightable because of the creativity they embody and the existence of alternative ways in which Google could have developed its own APIs.

9th Circuit precedents

Google has pointed out that the plain language of Section 102(b) makes procedures, systems, and methods of operation unprotectable by copyright law. It asserts the Java APIs at issue are unprotectable under this provision.

Google has relied on several appellate court decisions to support its claims that the Java APIs are unprotectable by copyright law. Especially relevant is the 9th Circuit Court of Appeals’ ruling in Sega v. Accolade.

Sega sued Accolade because it made copies of Sega software in the course of reverse-engineering to get access to the interface procedures embedded in the Sega code. Accolade needed to know this information to make its video games compatible with the Sega platform.

The 9th Circuit held this reverse engineering was a non-infringing fair use because it was done for the legitimate purpose of getting access to interface procedures which were “the functional requirements for [achieving] compatibility” and consequently unprotectable under Section 102(b).

Google claims that the CAFC erred by ignoring this aspect of the Sega decision. (Ordinarily an appeal from a California federal court would have gone to the 9th Circuit, but because Oracle originally sued Google for patent as well as copyright infringement, Oracle’s appeal from the copyright loss went to the CAFC instead. The CAFC was supposed to follow 9th Circuit precedents.)

The CAFC opined that Google’s arguments about compatibility might be relevant to its fair use defense to Oracle’s claim of infringement, but not to whether the Java APIs were protectable by copyright law.

Origins of Section 102(b) exclusions

Copyright’s exclusion of systems and methods of operation from the scope of its protection traces back to the Supreme Court’s 1880 ruling in Baker v. Selden. Selden sued Baker because he copied the bookkeeping forms Selden published to illustrate how to implement his new bookkeeping system. Selden won at the trial court level, and Baker appealed.

The Supreme Court perceived the question in Baker to be “whether the exclusive property in a system of bookkeeping can be claimed, under the law of copyright, by means of a book in which that system is explained[.]”

The Court ruled that Selden’s copyright extended to his explanation of the bookkeeping system, but not to the system itself, the method of operation it prescribed, or the forms that implemented the system. Such a “useful art” might have been eligible for patent protection, but not for copyright.

The Court observed that “[t]o give to the author of the book an exclusive property in the [useful] art described therein, when no examination of its novelty has ever been officially made, would be a surprise and a fraud upon the public. That is the province of letters-patent, not of copyright.”

Congress codified the Baker holding in Section 102(b). A legislative report said it did so “to make clear that the expression adopted by the programmer is the copyrightable element in a computer program, and that the actual processes or methods embodied in the program are not within the scope of the copyright law.”

The 9th Circuit in Sega recognized that copyright law should not protect interface procedures because that would confer patent-like protection on the functional requirements for compatibility without Sega meeting the stricter standards required for patents.

The trial judge in Oracle expressed concern that Oracle’s copyright claim might be seeking to obtain “an exclusive right to a functional system, process, or method of operation that belongs in the realm of patents, not copyrights.” The court noted that “[b]oth Oracle and Sun have applied for and received patents that claim aspects of the Java API.”

In overturning that decision, the CAFC seemed untroubled about possible overlaps of copyright and patent protection for APIs. In effect, it read the procedure, system, and method exclusions out of the statute.

Is SSO protectable by copyright?

The idea that program SSO is protectable expression as long as there is more than one way to accomplish a programming objective derives from a 1986 3rd Circuit ruling in Whelan Associates v. Jaslow Dental Lab. Oracle and the CAFC have embraced this theory.

The SSO concept was, however, substantially discredited in the 2nd Circuit’s 1992 Computer Associates v. Altai decision. In the years since Altai, courts have largely moved away from conceiving of SSO as protectable expression in programs because it fails to provide a workable framework within which to distinguish protectable and unprotectable structural aspects of programs.

The 2nd Circuit in Altai emphasized that the “essentially utilitarian nature of computer programs” makes it difficult to separate protectable and unprotectable structural elements in programs.

Altai announced a new “abstraction, filtration, and comparison” test for software copyright infringement. Among the structural elements of programs that must be filtered out before assessing infringement are efficient design elements, elements constrained by external factors, and standard programming techniques.

The 2nd Circuit in Altai was quite explicit that elements of programs “dictated by external factors” such as “compatibility requirements of other programs with which a program is designed to operate in conjunction” lie outside the scope of protection that copyright provides to programs. Such structural similarities must be filtered out before courts can determine whether a defendant infringed copyright.

The 9th Circuit followed Altai’s lead in holding that interface procedures necessary for achieving interoperability among programs were functional elements of programs that copyright did not protect under Section 102(b). In Sega, the court cited approvingly to Altai for the proposition that computer programs “contain many logical, structural, and visual display elements that are dictated by the function to be performed, by considerations of efficiency, or by external factors such as compatibility requirements and industry demands.”

Lotus v. Borland

Another important appellate ruling that supports Google’s theory is Lotus v. Borland. In 1995, the 1st Circuit ruled that Borland had not infringed by copying the SSO of the Lotus 1-2-3 command hierarchy for use in the emulation interface of Borland’s Quattro Pro program. Borland had to use the same commands in the same order so that users who had constructed macros of frequently executed functions in the Lotus macro language could continue to use those macros in the Borland program.

The 1st Circuit in Borland did not find the SSO concept helpful in distinguishing protectable and unprotectable structural elements of computer programs. It held that the SSO at issue in Borland was an unprotectable method of operation under Section 102(b), akin to the command structure of VCR machines.

The trial judge in the Oracle case relied on the Borland decision, characterizing the Java APIs as a similar type of command structure. The CAFC chose not to follow Borland, and interpreted Altai as applicable only when initial designers of APIs are themselves constrained in their choices about structuring the interfaces.

Conclusion

Twenty years ago, the Supreme Court took Lotus’ appeal from the 1st Circuit ruling. After oral argument, it split 4-4 on the proper interpretation of Section 102(b) as applied to computer programs. This left the 1st Circuit opinion intact, but did not make a nationwide precedent. The issues left undecided in that case are before the Court in the Oracle case.

Several amicus briefs filed in support of Google’s appeal say that if the Supreme Court does not repudiate the CAFC’s interpretation of copyright law, the result will likely be a new surge in litigation over the protectability of APIs, even though this issue had seemed to be resolved by appellate court rulings going back to 1992.

Oracle and its amici (if any) will have their say on the issues in briefs filed in December 2014. The Court will likely decide whether to hear the case in January or February of 2015. Because of the importance of the issue to the software industry, I predict the Court will decide to hear the case. How it will rule remains to be seen.

]]>http://radar.oreilly.com/2014/11/copyrightability-of-java-apis-revisited.html/feed0Why software startups decide to patent … or nothttp://radar.oreilly.com/2010/07/why-software-startups-decide-t.html
http://radar.oreilly.com/2010/07/why-software-startups-decide-t.html#commentsWed, 21 Jul 2010 13:00:00 +0000http://blogs.oreilly.com/radar/2010/07/why-software-startups-decide-t.htmlGuest blogger Pamela Samuelson is the Richard M. Sherman Distinguished Professor of Law and Information at the University of California, Berkeley. She teaches courses on intellectual property, cyberlaw, and information privacy, and she has written and spoken extensively about the challenges that new information technologies pose for traditional legal regimes. A version of this material is scheduled to appear in the November 2010 issue of Communications of the ACM.

Two-thirds of the approximately 700 software entrepreneurs who participated in the 2008 Berkeley Patent Survey report that they neither have nor are seeking patents for innovations embodied in their products and services. These entrepreneurs rate patents as the least important mechanism among seven options for attaining competitive advantage in the marketplace. Even software startups that hold patents regard them as providing only a slight incentive to invest in innovation.

After providing some background about the survey, this column will discuss some key findings about how software startup firms perceive, use and are affected by the patent system.

While the three findings highlighted above might seem to support a software patent abolitionist position, it is significant that a third of the software entrepreneurs reported having or seeking patents, and that they perceive patents to be important to persons or firms from whom they hope to obtain financing.

Survey background

More than 1,300 high technology entrepreneurs in the software, biotechnology, medical devices, and computer hardware fields filled out the Berkeley Patent Survey. All of these firms had been started no more than ten years before the survey was conducted. We drew our sample from a general population of software firms registered with Dun & Bradstreet (D&B) and from the VentureXpert (VX) database that has a rich data set on venture-backed startups. (Just over 500 of the survey respondents were D&B firms; just under 200 were VX firms.)

Eighty percent of the software respondents were either the CEOs or CTOs of their firms, and most had experience in previous startups. The average software firm had 58 employees, half of whom were engineers. Between 10 and 15 percent of the software startup respondents among the D&B respondents were venture-backed firms. Among the software respondents, only 2 percent had experienced an initial public offering (IPO), while 9 percent had been acquired by another firm.

Our interest in conducting this survey arose because high technology entrepreneurs have contributed significantly to economic growth in recent decades. They build firms that create new products, services, organizations, and opportunities for complementary economic activities. We were curious to know the extent to which high tech startups were utilizing the patent system, as well as to learn their reasons for choosing to avail themselves of the patent system — or not.

The basic economic principle underlying the patent system is that technology innovations are often expensive, time-consuming, and risky to develop, although once developed, these innovations are often cheap and easy to copy. In the absence of intellectual property rights (IPRs), innovative high tech firms may have insufficient incentives to invest in innovation insofar as they cannot recoup their research and development (R&D) expenses and justify further investments in innovation because of cheap copies that undermine the firms’ recoupment strategy.

Although this economic principle applies to all companies, early-stage technology firms might, we conjectured, be more sensitive to IPRs than more mature firms. The former often lack various kinds of complementary assets (such as well-defined marketing channels and access to cheap credit) that the latter are more likely to enjoy. We decided it would be worthwhile to test this conjecture empirically. With generous funding from the Ewing Marion Kauffman Foundation, we and two other colleagues designed and carried out the survey and analyzed the results.

Why startups decide to patent — or not to

The most important reasons for seeking patents, as reported by the software executives who responded to the Berkeley Patent Survey, were these:

to prevent competitors from copying the innovation (2.3 on a 4 point scale, where 2 was moderately important)

to enhance the firms’ reputation (2.2)

and to secure investment and improve the likelihood of an IPO (1.96 and 1.97 respectively)

The importance of patents to investors was also evident from survey data showing striking differences in the rate of patenting among the VX and the D&B software companies.

Three-quarters of the D&B firms had no patents and were not seeking them. Because the D&B firms are, we believe, typical of the population of software startup firms in the U.S., their responses may be representative of patenting rates among software startups generally. It is, in fact, possible that the overall percentage of software startup patenting is lower than this, insofar as patent holders may have been more likely than other software entrepreneurs to take time to fill out a Berkeley Patent Survey.

In striking contrast to the D&B respondents, over two-thirds of the VX software startup respondents in the sample, all venture-backed, had or were seeking patents. We cannot say why these VC-backed firms were more likely to seek patents than other firms. Perhaps VCs are urging the firms they fund to seek patents; or VCs may be choosing to fund the development of software technologies that VCs think are more amenable to patenting.

Interestingly, the rate of patenting did not vary by the age of the firm (that is, older firms did not patent at rates statistically significant from younger firms).

Why forgo patenting?

The survey asked two sets of questions about decisions to forego patenting: For the last innovation for which the firm chose not to seek a patent, what factors influenced this decision, and then what was the most important factor in the decision?

The costs of obtaining and of enforcing patents emerged as the first and second most frequent explanation. Twenty-eight percent of the software startups reported that the costs of obtaining patents had been the most important factor in this decision, and 12 percent said that the costs of enforcing patents was the most important factor. (They reported that average cost of getting a software patent was just under $30,000.)

Ease of inventing around the innovation and satisfaction with trade secrecy also influenced software startup decisions not to seek patents, although only rarely were these factors considered the most important.

Intriguingly, more than 40 percent of the software executive respondents cited the unpatentability of the invention as a factor in decisions to forego patenting, and almost a quarter of them rated this as the most important factor. Indeed, unpatentability ranked just behind costs of obtaining patents as the most frequently cited “most important factor” for not seeking patents.

It is difficult to know what to make of the unpatentability finding. One explanation might be that the software entrepreneur respondents believed that patent standards of novelty, non-obviousness, and the like are so rigorous that their innovation might not have satisfied patent requirements. Yet, because the patentability of software innovations has been contentious for decades, it may also be that a significant number of these entrepreneurs have philosophical or practical objections to patents in their field.

How important are patents to competitive advantage?

One of the most striking findings of our study is that software firms ranked patents dead last among seven strategies for attaining competitive advantage identified by the survey, as Figure 1 below shows. (The relative unimportance of patents for competitive advantage in the software field contrasts sharply with the perceived importance of patents in the biotech industry, where patents are ranked the most important means of attaining such advantage.)

As Figure 1 shows, software startups regard first-mover advantage as the single most important strategy for attaining competitive advantage. Next most important was complementary assets (e.g., providing services for licensed software or offering a proprietary complement to an open source program).

Interestingly, these two strategies for getting ahead in the market outstrip the IPRs about which we inquired for software firms. Among IPRs, though, copyrights and trademarks, closely followed by secrecy and difficulties of reverse engineering, outranked patents as means of attaining competitive advantage among software respondents by a statistically significant margin.

What incentive effects do patents have?

The Berkeley Patent survey asked startup executives to rate the incentive effects of patents on a scale, where 0 = no incentive, 1 = weak incentive, 2 = moderate incentive, and 3 = strong incentive, for engaging in four types of innovation: (1) inventing new products, processes, or services, (2) conducting initial R&D, (3) creating internal tools or processes, and (4) undertaking the risks and costs of commercializing the innovation.

We were surprised to discover that the software respondents reported that patents provide only weak incentives for engaging in core activities, such as invention of new products (.96) and commercialization (.93). By contrast, biotech and medical device firms reported just above 2 (moderate incentives) for these same questions.

Interestingly, the results did not change significantly even when focusing only on responses from software entrepreneurs whose firms hold at least one patent or application. Even patent-holding software entrepreneurs reported that patents provide just above a weak incentive for engaging in these innovation-related activities.

Resolving a paradox

If patents provide only weak incentives for investing in innovation among software startups, why are two-thirds of the VX firms and at least one-quarter of the D&B firms seeking patents?

The answer may lie in the perception among software entrepreneurs that patents may be important to potential funders, such as venture capitalists (VCs), angel investors, other firms, commercial banks, and friends and family. Sixty percent of software startups that had negotiated with VCs reported that that they perceived patents to be an important factor in VC decisions about whether to make the investments. Between 40 and 50 percent of the software respondents reported that patents were important to other types of investors, such as angels, investment banks, and other companies.

How well is the patent system working?

While most of the Berkeley Patent Survey questions focused on what firms had actually been doing vis-à-vis patents, we decided to ask a few questions to gauge the perception of high tech entrepreneurs about the patent system. We asked, for example, how well the entrepreneurs perceive the patent system to be working for them and for their industry. The scale for responses ranged from 0 = very poorly to 4 = very well, and 2 = neither poorly or well.

The software entrepreneurs’ for-my-industry rating was 1.6 and their for-my-firm rating was 1.7. Both results tend toward the poorly end of the scale (in contrast to the biotech and medical device firms that reported above 2 ratings on both questions).

It is interesting is that the VX firms were slightly less positive about the patent system than the D&B firms, although the difference was not statistically significant. We also tested to see if the responses were bipolar (that is, did some software firms rate the patent system very poorly and their ratings canceled out by some positive responses?), but discovered that the ratings fell into a normal distribution, suggesting that we had drawn a sample from a cross-section of the population.

Conclusion

Over the next several years, we expect to engage in further analysis of the results of the 2008 Berkeley Patent Survey and to report new findings about the roles that patents play in the software industry. The initial findings reported here and in the larger article suggest that software entrepreneurs do not find persuasive the canonical story that patents provide strong incentives to invest in technology innovation. These executives regard first-mover advantage and complementary assets as more important than IPRs in conferring competitive advantage upon their firms. Moreover, among IPRs, copyrights and trademarks are perceived to be more important than patents. Still, about one-third of our software entrepreneur respondents reported having or seeking patents, and their perception that their investors care about patents seems to be a key factor in decisions to obtain patents.

]]>http://radar.oreilly.com/2010/07/why-software-startups-decide-t.html/feed19Legally Speaking: The Dead Souls of the Google Booksearch Settlementhttp://radar.oreilly.com/2009/04/legally-speaking-the-dead-soul.html
http://radar.oreilly.com/2009/04/legally-speaking-the-dead-soul.html#commentsFri, 17 Apr 2009 08:35:35 +0000http://blogs.oreilly.com/radar/2009/04/legally-speaking-the-dead-soul.html
Guest blogger Pamela Samuelson is the Richard M. Sherman Distinguished
Professor of Law and Information at the University of California, Berkeley, as well as a Director of the Berkeley Center for Law & Technology and an advisor to the Samuelson High Technology Law & Public Policy Clinic at Boalt Hall. She has written and spoken extensively about the challenges that new information technologies pose for traditional legal regimes, especially for intellectual property law.

Google has scanned the texts of more than seven million books from major university research libraries for its Book Search initiative and processed the digitized copies to index their contents. Google allows users to download the entirety of these books if they are in the public domain (about 1 million of them are), but at this point makes available only “snippets” of relevant texts when the books are still in copyright unless the copyright owner has agreed to allow more to be displayed.

In the fall of 2005, the Authors Guild, which then had about 8000 members, and five publishers sued Google for copyright infringement. Google argued that its scanning, indexing, and snippet-providing was a fair and non-infringing use because it promoted wider public access to books and because Google would take out of the Book Search corpus any digitized books whose rights holders objected to their inclusion. Many copyright professionals expected the Authors Guild v. Google case to be the most important fair use case of the 21st century.

This column argues that the proposed settlement of this
lawsuit is a privately negotiated compulsory license primarily designed to
monetize millions of orphan works. It will benefit Google and certain authors and publishers, but it is questionable whether the authors of most books in the corpus (the “dead souls” to which the title refers) would agree that the settling authors and publishers will truly represent their interests when setting terms for access to the Book Search corpus.

Orphan Works

An estimated 70 per cent of the books in the Book Search
repository are in-copyright, but out of print. Most of them are, for all practical purposes, “orphan works,” that is, works for which it is virtually impossible to locate the appropriate rights holders to ask for permission to digitize them.

A broad consensus exists about the desirability of making
orphan works more widely available. Yet, without a safe harbor against possible infringement lawsuits, digitization projects pose significant copyright risks. Congress is considering legislation to lessen the risks of using orphan works, but it has yet to pass.

The proposed Book Search settlement agreement will solve the
orphan works problem for books—at least for Google. Under this agreement, which must be approved by a federal court judge to become final, Google would get, among other things, a license to display up to 20 per cent of the contents of in-copyright
out-of-print books, to run ads alongside these displays, and to sell access to the
full texts of these books to institutional subscribers and to individual
purchasers.

The Book Rights Registry

Approval of this settlement would establish a new collecting society, the Book Rights Registry (BRR), initially funded by Google with $34.5 million. The BRR will be responsible for allocating $45 million in settlement funds that Google is providing to compensate copyright owners for past uses of their books.

More important is Google’s commitment to pay the BRR 63 per
cent of the revenues it makes from Book Search that are subject to sharing
provisions. The revenue streams will come from ads appearing next to displays of in-copyright books in response to user queries and from individual purchases of and institutional subscriptions to some or all of the books in the corpus. Google and the BRR may also develop new business models over time that will be subject to similar sharing.

One of the main jobs of the BRR will be to distribute the settlement revenues. The money will go, less BRR’s costs, to authors and publishers who have registered their copyright claims with BRR. Although the settlement agreement extends only to books published prior to January 5, 2009, BRR is expected to attract authors and publishers of later-published books to participate in the revenue sharing arrangement that Google has negotiated with BRR.

Class Action Settlement

By now, readers may be a bit puzzled. How can Google be getting a license to make millions of in-copyright books available through Book Search just by
settling a lawsuit brought by a small fraction of authors and publishers?

U.S. law allows the filing of “class action” lawsuits whose
named plaintiffs claim they represent a class of persons who have suffered the
same kind of harm from the defendant’s wrongful conduct as long as there are
common issues of fact and law that make it desirable to adjudicate the claims
in one lawsuit instead of many.

The Authors Guild and three of its members sued Google, claiming to represent a class of similarly situated authors whose books Google was scanning and whose copyrights Google was violating. By bringing a class action, the Authors Guild put considerable financial pressure on Google because the winner of a class action lawsuit is entitled to compensation that equals all of the monies owed to the class, which may be exponentially higher than awards to individual
plaintiffs.

In the absence of the proposed settlement, Google would almost certainly have vigorously fought against certification of the class in the Authors Guild case. After all, the guild has only a few thousand members and most of them do not write the kinds of scholarly works that are typically found in major university research libraries. Many scholars would want their books to be scanned by the Book Search project so they would be more accessible to potential readers.

The publisher lawsuit did not start out as a class action, perhaps in part because McGraw-Hill, et al., recognized how difficult it would be for them to prove they adequately represented a class of all book publishers whose books Google had scanned.

However, the settlement agreement that Google has negotiated
with the Authors Guild and the Association of American Publishers would, if
approved, be settled as a class action on behalf of all book authors and publishers, with the Guild and AAP claiming to represent their entire respective classes. By acceding to the certification of these classes through
this settlement, Google will get a license from all authors and publishers of books
covered by the agreement (which is to say nearly every in-copyright book ever
published in the U.S.) so that it can commercialize them though Book Search.

Google’s New Monopoly

The proposed settlement agreement would give Google a
monopoly on the largest digital library of books in the world. It and BRR, which will also be a monopoly, will have considerable freedom to set prices and terms and conditions for Book Search’s commercial services. BRR is unlikely to complain that the price is too high, the digital rights management technology is too restrictive, or the terms are too onerous.

Google will also be the only service lawfully able to sell orphan books and monetize them through subscriptions. BRR will get 63 per cent of these revenues which it will pay out to authors and publishers registered with it, even as to books in which they hold no rights. (Some unclaimed orphan book funds may go to charities that promote literacy.) No author whose books are in the corpus can get paid by the BRR unless he/she has registered with it.

Virtually the only way that Amazon.com, Microsoft, Yahoo!, or the Open Content Alliance could get a comparably broad license as the settlement would give Google would be by starting its own project to scan books. The scanner might then be sued for copyright infringement, as Google was. It would be very costly and very risky to litigate a fair use claim to final judgment given how high copyright damages can be (up to $150,000 per infringed work). Chances are also slim that the plaintiffs in such a lawsuit would be willing or able to settle on equivalent or even similar terms.

Dead Souls

The Book Search settlement brings to mind Nikolai Gogol’s story, Dead Souls. Chichikov, its main character, travels around the Russian countryside to buy “dead souls” so that he can become a wealthy and influential man. In
the early 19th century, you see, Russian landowners had to pay annual
taxes on the number of serfs (counted as “souls”) they owned as of the last census.

Chichikov offered to buy “dead souls” (i.e., serfs who had died since the last census) from the landowners. His plan was to acquire enough of these souls so that he could take out a large loan secured by his portfolio, and thereby to become a
wealthy man.

In Gogol’s story, Chichikov’s scheme falls apart. Rumors fly that the souls he owns are all dead and he flees the town in disgrace.

However, Google’s “dead souls” scheme may pay off handsomely, as the settlement would, in effect, give Google the exclusive right to
commercially exploit millions of orphan books.

Representativeness?

As galling as it is to realize that the BRR and its registered authors and publishers will derive income from millions of books they didn’t write or publish, it is even more galling that copyright maximalists will almost certain dominate the BRR governing board.

(The Authors Guild president, for example, recently complained about the “read aloud” feature of Kindle, denoting it a “swindle,” and a copyright infringement. The AAP is supporting legislation to forbid the National Institutes of Health from promoting “open access” policies for articles written under NIH grants. And of course, the Authors Guild and AAP characterized Google as a thief for scanning books from research libraries.)

If asked, the authors of orphan books in major research libraries might well prefer for their books to be available under Creative Commons licenses or put in the public domain so that fellow researchers could have greater access to them. The BRR will have an institutional bias against encouraging this or considering what terms of access most authors of books in the corpus would want.

In reviewing the settlement, the judge who is supposed to consider whether the settlement is “fair” to the classes on whose behalf the lawsuits were brought. He may assume the settlement is fair because money will flow to authors and publishers. But importantly absent from the courtroom will be the orphan book authors who might have qualms about the Authors Guild and AAP as their representatives.

Conclusion

In the short run, the Google Book Search settlement will unquestionably bring about greater access to books collected by major research libraries over the years. But it is very worrisome that this agreement, which was negotiated in secret by Google and a few lawyers working for the Authors Guild and AAP (who will, by the way, get up to $45.5 million in fees for their work on the settlement—more than all of the authors combined!), will create two complementary monopolies with exclusive rights over a research corpus of this magnitude. Monopolies are prone to engage in many abuses.

The Book Search agreement is not really a settlement of a dispute over whether scanning books to index them is fair use. It is a major restructuring of the book industry’s future without meaningful government oversight. The market for digitized orphan books could be competitive, but will not be if this settlement is approved as is.